The Dilemma of Single Purpose Entities

Because of the flexibility given to operators under Part 91 of the Federal Aviation Regulations (“FARs”), most corporate “flight departments” choose to operate under Part 91 as opposed to the more restrictive and certainly more costly air carrier certificate “charter” operations under Part 135.

The threshold question for determining if an aircraft operator is eligible to operate under Part 91 is whether the operation of the aircraft is incidental to the primary business of the operator. An entity that is formed solely to operate an aircraft (i.e., provide aircraft and crew) to carry persons or property, also known as a “flight department company,” would not meet the test for operating an aircraft “incidental” to a primary business because, by definition, the single purpose entity, often a single member LLC, has no other business (other than transportation). At least four FAA interpretations confirm this interpretation.

Practically, when an aircraft is operated by a single purpose entity that owns or leases the aircraft and provides the crew (directly or indirectly), the FAA views such an operation as operating for “compensation,” regardless of whether the entity is carrying its owners or any other party and, accordingly, requires the operator to hold a 135 charter certificate. The FAA and Department of Transportation construe “compensation” broadly. For example, because the entity engages in no other business, capital contributions from the operating entity’s owner to cover the cost of the operation of the aircraft could be deemed payment in exchange for the provision of transportation to the owner or to any other party. Therefore, under current FAA published interpretations, single purpose entities are not eligible to operate aircraft under Part 91.

Our attorneys are experienced with assisting clients with structuring their aircraft operations to comply with the often counterintuitive regulations of the FAA.